Nairobi, Kenya — Kenya is teetering on the edge of a debt crisis, with the World Bank warning that current austerity measures may not suffice to prevent a default. The country’s public debt has ballooned to Ksh11.02 trillion, representing 65.7% of its GDP, surpassing the recommended threshold of 55%.
Qimiao Fan, the World Bank’s Country Director for Kenya, cautioned, “Default is not an effective solution for anyone. Evidence shows that sovereign defaults reduce GDP per capita by about 8.5% and increase poverty by 6% within five years.”
Government’s Response
In an attempt to address the fiscal challenges, Treasury Cabinet Secretary John Mbadi announced a series of austerity measures, including a Ksh120 billion cut in expenditure for the 2025/26 financial year. The government aims to reduce the fiscal deficit to below 5.3% in 2025.
“We took the decision to be radical in projecting our fiscal deficit and revenues,” Mbadi stated. “We reduced our projected expenditure to below what was in the budget policy.”
Despite these efforts, the World Bank remains skeptical. Jorge Tudela Pye, a World Bank economist, noted, “Austerity measures alone might not be enough. Structural and governance reforms are also needed.”
Economic Indicators
The World Bank has revised Kenya’s 2025 economic growth forecast downward to 4.5%, citing high public debt, elevated lending rates, and a contraction in private sector credit.
Private sector credit growth plunged to -1.4% in December 2024, compared to 13.9% a year prior. Key sectors like manufacturing, finance, and mining are suffering from reduced credit availability and increased bad loans, particularly among smaller banks.
Calls for Structural Reforms
Beyond fiscal consolidation, experts emphasize the need for structural reforms to address the underlying issues. Mbadi acknowledged that corruption remains a significant challenge, stating that Kenya could settle its external debt obligations if the government succeeded in cutting down corruption by half.
“We lose so much money in procurement alone,” Mbadi said. “If we could just reduce our theft by 50%, we would save Ksh365 billion annually—a figure that far exceeds the Ksh280 billion in external debt maturing in 2025.”
Outlook
With only weeks to the presentation of the budget, the National Treasury faces mounting pressure to implement comprehensive reforms. The World Bank’s warning underscores the urgency of addressing not just the symptoms but the root causes of Kenya’s fiscal challenges.
As the country grapples with these issues, the path forward will require not only fiscal discipline but also a commitment to transparency, accountability, and structural change.
